In a case of both local and statewide interest, on March 21, 2012, the California Supreme Court denied review of a Court of Appeal decision involving a San Francisco ordinance. Aiuto v. City and County of San Francisco (201 Cal.App.4th 1347 [Cal.App. 1 Dist., December 15, 2011]) involves a challenge to the City’s Condominium Conversion BMR Program (“BMR Program”) by owners of certain BMR units restricted under the Program. As discussed below, the Aiuto decision indicates the broad applicability of a 90-day statute of limitations contained in the California Subdivision Map Act (“SMA”) for claims concerning subdivisions. Long before the City’s current inclusionary housing ordinance, the City established the BMR Program in 1979 under the authority of the SMA by adopting Sections 1341 and 1385 of the San Francisco Subdivision Code. The BMR Program was created in an effort to limit perceived tenant displacement in connection with condominium conversions and to provide opportunities for first-time home buyers, and required owners converting their buildings from apartments to condominiums to designate a certain number of the units as below market rate (“BMR”) units. These BMR units were then typically sold to low or moderate income buyers. After a dispute arose between the City and owners of certain BMR units regarding the terms of the BMR Program, the City adopted Ordinance No. 320-08 (“Ordinance”) in December 2008, which amended the BMR Program and added new regulations. Five months after the effective date of the Ordinance, a number of BMR unit owners filed a lawsuit challenging the Ordinance on various grounds, and seeking release of their units from the Program. While the plaintiffs’ claims were being litigated, the Superior Court issued a preliminary injunction delaying the City’s enforcement of the Ordinance against the plaintiffs until the case was decided by the court. On the City’s appeal of the lower court’s issuance of the preliminary injunction, the Court of Appeal reversed the lower court’s decision and invalidated the preliminary injunction. In deciding that the injunction was improperly granted, the court based its decision on the 90-day statute of limitations contained in SMA Section 66499.37, which requires that any action challenging a legislative body’s decision concerning a subdivision must be filed with the court within 90 days of the effective date of the decision. As the plaintiffs filed their lawsuit five months after the effective date of the Ordinance, the court reasoned that plaintiffs’ claims were time barred. Although the BMR Program dated back to 1979, because the Program was adopted under the authority of the SMA, and because the City adopted the Ordinance as an amendment to the Program, the court determined that SMA Section 66499.37 served to bar the plaintiffs’ claims challenging the Ordinance. While the court’s decision was technically limited to the preliminary injunction, and the case was sent back to the Superior Court for further proceedings, the Court of Appeal’s rationale may signal the ultimate resolution of the plaintiffs’ claims. If the lower court follows this rationale, the plaintiffs’ claims would be denied for failure to file the lawsuit before the 90-day deadline, irrespective of the merits of the plaintiffs’ underlying challenges to the Ordinance. In applying the 90-day deadline in SMA Section 66499.37, rather than the various 2-5 year deadlines for claims urged by the plaintiffs under other state and federal laws, the court cited the California Supreme Court’s decision in Hensler v. City of Glendale ([1994] 8 Cal.4th 1) in stating that “any challenge to local legislative or administrative acts or decisions taken pursuant to ordinances enacted under the authority of the Subdivision Map Act [are subject to the 90-day statute of limitations in SMA Section 66499.37].” The court also noted the broad applicability of SMA Section 66499.37 to a variety of controversies, which may not seem to involve a subdivision subject to the SMA. (See e.g., McPherson v. City of Manhattan Beach (2000) 78 Cal.App.4th 1252, 1264-1265 [SMA Section 66499.37 applied to city’s grant of a conditional use permit allowing a developer of a condominium project to exceed city’s building height restriction]; Friends of Riverside’s Hills v. City of Riverside (2008) 168 Cal.App.4th 743, 754-756 [SMA Section 66499.37 applied to cause of action under California Environmental Quality Act that concerned a subdivision]. Given the court’s decision in Aiuto, and the broad applicability of SMA Section 66499.37 to a variety of controversies concerning land use and development even remotely related to the SMA, property owners and developers considering a challenge to a local legislative or administrative act or decision should carefully consider whether SMA Section 66499.37 will impose a 90-day statute of limitation on the filing of such a claim. Anyone considering such a challenge should seek legal advice to ensure compliance with any applicable deadlines. The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work. Copyright 2012 Reuben & Junius, LLP. All rights reserved.  

Now that the demise of the San Francisco Redevelopment Agency is complete and transition plans are in place and gaining maturity, collateral issues are becoming the focus. The loss of the San Francisco Redevelopment Agency (“Agency”) jobs has caused concern and created friction during the transition. However, the single most attention-grabbing issue is the subtraction of the Agency as the catalyst and generator of subsidies for affordable housing in San Francisco. For years, the Agency had been the most prolific creator and sponsor of affordable housing projects at all levels. Through the acquisition of land, earmarking the revenues generated by tax increment financing, and the creation of higher density opportunities through its Project Area Plans, the Agency had the tools and incentives to create affordable housing. All of the constituents including the Mayor’s Office, non-profit housing developers, market-rate housing developers, the Board of Supervisors, and others are in agreement that something should be done to fill in at least a part of the Agency’s affordable housing role. Through the prompting of the Mayor’s Office, there have been a series of meetings of an informal working group known as the Housing Trust Fund Work Group. Although nothing has been decided and agreements are far from being reached (and there may never be agreement on this), many ideas have been floated to create a steady-and protected-revenue stream to fund affordable housing. Voters could be asked to weigh in on these ideas in upcoming ballot measures. One proposal would simply create a funding set-aside out of existing revenues. Another proposal that seems to be gaining traction is establishing a Community Equity Increment Fund (“CEIF”). The CEIF would set aside a portion of the increased property tax revenue from the development of market-rate housing to fund new affordable housing construction. From that point, the discussions get dicey. In the initial years, the creation of tax increment, on its own, would raise small amounts of money, which would, over time, grow into a larger and relatively stable funding source. The Agency had been bonding tax increment income streams. This created additional up-front funding for affordable housing, but increases long-term debt obligations and financing costs. The talks within the Housing Trust Fund Work Group are varied. Many of the constituents would far prefer a “pay as you go” system simply using the actual dollars created. Others wish to use those funds for bonding purposes to produce more funding in the near term. As we understand it, the resolution is far from clear. A CEIF may or may not make it to the ballot, now, or possibly ever. A related proposal that is gaining some interest has to do with the existing affordable housing requirements found at Sections 415 et. sec. of the Planning Code. Many of the participants in the talks are convincingly making the case that the existing affordable housing program is an impediment to creating market-rate housing because the cost of the inclusionary units or in-lieu fee requirements add a significant increment to the overall cost of housing production on the order of $50,000 to $70,000 a unit, depending on a variety of factors. There has been some discussion about reducing inclusionary requirements or continuing the inclusionary housing program but requiring that the Mayor’s Office of Housing use some of its CEIF to pay down the cost of those inclusionary units. Either approach could significantly boost the production of market-rate construction, and thereby increase revenue flowing to the CEIF and general fund. The outcome and probability of any agreement is again, unclear. Finally, and by no means are we intending to be comprehensive in surveying the ideas that are being discussed, there has been some talk of an overall fee cap for new housing. As of now, in addition to the inclusionary housing requirements, depending on the location of the project within the City, there are school impact fees and PUC fees (which have gone up dramatically in the recent past). There is also talk of the imposition of a transit fee and an art fee on the production of housing. In addition, much of the proposed new housing is within relatively new and recently enacted “plan areas” which include their own infrastructure fees that can be in the range of $20 per square foot. Combined with the inclusionary housing mandate, total city fees clock in at $80,000 – $90,000 per unit in areas like Rincon Hill. Taken as a whole, those fees simply don’t pencil on many projects and create significant increased costs on those that get built. Unfortunately, some constituencies are resisting the very idea of a study that would comprehensively analyze the impact of all exactions on the feasibility of new housing production – a critical first step in determining whether a cap is needed, and, if so, at what level it would be set. We will continue to monitor and try to provide at least the most important ideas being discussed in subsequent E-letters. Certainly if any agreements are reached, they will be well-publicized and will probably be on the ballot for electorate consideration. The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work. Copyright 2012 Reuben & Junius, LLP. All rights reserved.  

Easements are valuable property rights in many real estate acquisitions. A recent case decided by the Court of Appeal could provide clarification on damages valuation for the loss of an easement. Generally, for the loss of an appurtenant easement, damages are measured by the diminution in value of the dominant estate. SCI California Funeral Services, Inc. v. Five Bridges Foundation involves a situation where a real property purchase transaction disintegrated and the court awarded damages to the buyer for the loss of an easement right associated with the property based on the value of removal of the easement to the servient estate. (2012 WL 447991 (Cal.App. 1 Dist.)). In SCI California Funeral Services, Inc., SCI, as the buyer, entered into a contract to purchase cemetery property from Five Bridges predecessor, as seller. In the purchase contract, the property was defined as the current cemetery property, as well as seller’s rights under an option agreement to purchase additional parcels of an adjacent property and an easement right to signage on a nearby property, both owned by Cypress Abbey. Unbeknownst to SCI, Five Bridges had previously entered into an oral agreement with Cypress Abbey to release its rights to the signage easement in exchange for the right to drill a well within the area burdened by such easement. Cypress Abbey further believed that the option to purchase the additional land was contingent on the release of the easement rights. After the purchase transaction closed with Five Bridges, SCI tried to exercise its option to the additional parcels but Cypress Abbey was unwilling to honor the option unless and until SCI agreed to release the signage easement based on Cypress Abbey’s agreement with Five Bridges. Since SCI had entered into the agreement specifically to exercise its option for the additional land, which Cypress Abbey was unwilling to honor without the easement release, SCI sued Five Bridges for breach of contract, in addition to other causes of action. The lower court held that Five Bridges had breached the purchase agreement by failing to convey the easement to SCI. Since the purchase agreement did not specify how the parties valued the easement, the lower court turned to alternate means of valuing what SCI lost as a result of the breach by Five Bridges. The lower court stated that SCI was entitled to the “benefit of performance” for the loss of the easement. In determining the value of the “benefit of performance”, the court specially considered the easement’s potential value to SCI as a bargaining chip in its negotiations with Cypress Abbey since Cypress Abbey would not honor the option agreement without SCI’s release of the easement. The lower court ultimately settled on a damage amount to SCI of $1.7 million and Five Bridges appealed this determination. On appeal, Five Bridges argued that the proper valuation of damages for the loss of an appurtenant easement is the diminution in value to the property that has the easement right (the dominant estate). Because SCI introduced no evidence valuing the easement under this methodology, Five Bridges argued that SCI did not prove any damages. The Court of Appeal recognized that in certain types of easements, such as easements which involve the right to pass over the land of another, the proper valuation is the diminution in value to the dominant estate. However, in those cases there is no market for an appurtenant easement because it may not be severed from the dominant estate and separately transferred from it. Here, the Court of Appeal reasoned that the easement was an asset that could be sold or traded to the property owner burdened by the easement (the servient estate). The Court of Appeal found the easement had a great impact on Cypress Abbey’s property value because it prevented them from using the underlying land for its highest and best use. The Court of Appeal further held that this easement was uniquely valuable as an asset in negotiating with Cypress Abbey concerning the option to purchase the additional land. Therefore, the Court of Appeal upheld the $1.7 million dollar valuation in damages, which was based on the difference in value between the servient property encumbered by the signage easement and the unencumbered servient property. It is appears that in SCI California Funeral Services, Inc, provided they use a reasonable value of computation, California courts will value the loss of an easement right differently depending on whether the easement is marketable on its own separate and apart from the dominant estate. In this case the Court of Appeal valued the easement based on the worth to the servient estate due to the fact it had market value on its own, whereas in other situations, like a right of way easement which specifically serves the dominant estate, it may find the value based on the loss of value to the dominant estate. Buyers who are purchasing property should be aware of any accompanying easements and their potential valuation of damages if ever there was a loss of such property rights. The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work. Copyright 2012 Reuben & Junius, LLP. All rights reserved.  

As we reported a number of months ago, changes are in the works for the Planning Code’s Downtown Artwork requirements. Over the last two decades, this program has been extremely successful in bringing public art to private developments downtown. As originally conceived, one percent (1%) of the construction cost of any new downtown building or significant addition was required to be spent on original commissioned artwork. This artwork was required to be publicly accessible, and can be seen throughout the downtown area in the various privately owned public open spaces (POPOS) and many publicly accessible downtown office lobbies. We believe that much of the success of this program was derived from its simplicity: it required developers to spend a significant yet easily determinable sum on brand new artwork and place it in their building for the benefit of the public. While the Planning Department produced a series of guidelines to ensure that the public got art, and not things like architectural features to buildings or fancy outdoor seating, the program has worked exceedingly well by simply letting the various property owners bring art to the public in a manner they chose. Last year we reported on coming changes to the Art Program. These changes would have included adding a layer of review and approval by the City’s Art Commission. As we discussed last year, we did not see the need for Art Commission oversight in what was a clearly successful program. It was a case of “If it ain’t broke, don’t fix it”. The legislation also created an option where a developer could satisfy the art requirement by simply paying the required fee that would have been spent on onsite art to an Art Commission fund. Sponsors of this ordinance have reconsidered and an amended ordinance is making its way through the process now. The requirement for Art Commission review of art installations required by the ordinance has been removed. The original option to comply by providing onsite public artwork remains. And the option of payment of an equivalent public art fee to an art trust fund will now also be available. The ordinance also extends the reach of the art requirement to non-residential projects in a variety of other zoning districts throughout the City, including many of the new Eastern Neighborhood zoning districts (such as UMU and MUO), as well as all of the new DTR districts and RC-3 and RC-4 districts (much of Van Ness Avenue is zoned RC-4). The expansion of the program to these other zoning districts will not take effect until January 1, 2013. The “trigger” will remain the construction of a new building or addition of floor area in excess of 25,000 square feet. There are a number of other technical provisions that deal with various types of residential and non-residential projects. Please let us know if you’d like to see a copy of the ordinance. We are happy to see that the core of the original ordinance will be retained allowing downtown developers to maintain control of their art installations. It will be interesting to see the effect of the program when it is spread to other zoning districts throughout the City and how much art will actually be created there, or whether smaller developers will choose to contribute to the art fund. Like the original ordinance, it will probably take a decade or more to see if it worked. Earlier the matter was as the Land Use Committee, and was continued to later in March. We will continue to track this legislation. The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work. Copyright 2012 Reuben & Junius, LLP. All rights reserved.      

Last week, the Planning Department presented to the Planning Commission its required Eastern Neighborhoods Monitoring Reports for the years 2006-2010. In receiving the Reports the Commission discussed several issues, the most significant of which was something many San Francisco land use practitioners have become increasingly aware of, that establishing businesses and creating jobs in the Production, Distribution and Repair (“PDR”) sector has proven difficult under the Eastern Neighborhoods zoning controls. It may already be time for the City to take a hard look at these controls to see what can be done to bring more PDR businesses and jobs to the Eastern Neighborhoods. As many readers know, the Eastern Neighborhoods Program was adopted in late 2008 and early 2009. Part of the implementing legislation requires the Department to produce five-year monitoring plans, with the first one looking back to 2006 in order to get a sense of the initial transition to the new zoning controls. The Eastern Neighborhoods Program consists of area plans covering four neighborhoods: Central Waterfront, East SoMa, Mission, and Showplace Square/Potrero Hill. The basic thrust of the Eastern Neighborhoods Program was to transition about half of the existing industrial areas in these four neighborhoods to mixed use zones that encourage new housing. The remaining half would be reserved for PDR districts. The Eastern Neighborhoods Program recognized that PDR activities, occurring largely in the Eastern Neighborhoods part of the City, provide critical support to the drivers of San Francisco’s economy, including the tourist industry, high tech industry and financial and legal services, to name a few. PDR businesses tend to provide stable and well-paying jobs for the 50% of San Francisco residents who do not have a college degree. Given the importance of PDR to the Eastern Neighborhoods Program, the Planning Commission expressed its concern in receiving the first Monitoring Reports that San Francisco is not getting enough PDR in the Eastern Neighborhoods. The Reports showed the following: • New Development and PDR Loss: Approximately 118,550 square feet of new PDR space was built in the Eastern Neighborhoods between 2006 and 2010. This represents over half of new PDR space built in the last five years. However, commercial development projects in the pipeline will result in the loss of approximately 325,300 square feet of PDR space in the Eastern Neighborhoods, representing two-thirds of all PDR space loss citywide. • Development Pipeline: The Eastern Neighborhoods will be a small contributor to new commercial development in San Francisco with just over 1% of proposed commercial development square footage in the Eastern Neighborhoods. The major addition to the San Francisco General Hospital – just under 548,800 square feet – makes up the bulk of commercial projects under construction in the Eastern Neighborhoods. Construction of new commercial space is being offset by conversion or demolition of existing commercial space, mostly in the light industrial PDR sector. • New Commercial Construction: New commercial development built in the Eastern Neighborhoods between 2006 and 2010 can support approximately 2,670 retail and office jobs. An additional 128 light industrial PDR jobs are expected to be accommodated in the new PDR space built. • Commercial Pipeline: Assuming an average employee density of 350 square feet, an estimated 1,670 office and retail jobs can be accommodated in the proposed commercial development pipeline in the Eastern Neighborhoods. Proposed conversion of light industrial PDR space to residential or other commercial space, however, could mean the loss of about 680 PDR jobs. The Commission and members of the public discussed a variety of possible solutions to the PDR problem, the common denominator of which was to increase flexibility in the PDR controls. One specific suggestion was an easing of the square footage controls for Small Enterprise Workspaces (SEW). Another suggestion was to ease the limitations on Integrated PDR. Yet another suggestion was to loosen the definition of what qualifies as PDR. Concerns were raised about “moving too fast” on changes to zoning controls in the Eastern Neighborhoods. It is our hope that the City will keep an open mind about these issues and take needed action sooner rather than later, particularly considering San Francisco’s immediate economic needs. If the City were to show flexibility with PDR, there are plenty of worthy projects out there that could and would happen to the great benefit of the Eastern Neighborhoods and the City as a whole. The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work. Copyright 2012 Reuben & Junius, LLP. All rights reserved.    

The Davis-Stirling Common Interest Development Act (the “Act”) has governed the creation and operation of common interest developments (mostly condominiums) since its passage in 1985. Through the years, the Act has been amended and supplemented a number of times. This has contributed to an unwieldy combination of different provisions that were not logically organized. Other provisions are outdated or contradictory. After a four year study, the California Law Revision Commission recommended that the Act be rewritten in a more user friendly format. Assembly Bill 805 (Torres) is intended to accomplish this goal. According to the Assembly Committee on Housing and Community Development, AB 805 would group the provisions of the Act in a more logical order, provide for consistent terminology, restate long and complex sections into simpler and shorter provisions, and standardize certain procedures. After reviewing the draft bill, it is clear that AB 805 greatly improves the organization and readability of the Act. One significant improvement is that particular issues, like use restrictions and annual disclosure requirements, are all grouped in one location. This makes the Act much easier to navigate, especially for the members of homeowners associations. There are also some substantive changes to the Act, but none that are controversial. The legislation has broad support (there have not been any “no” votes in any legislative committees). Based on the Assembly Committee’s report, some of these changes include: a Board of Directors may amend provisions of the condominium declaration (CC&Rs) that are intended to protect the Declarant during the construction and sales process, without a vote of the members or consent of the Declarant, so long as that phase of construction or sales is completed; confirmation that a non-owner occupant has the same protections as an owner with respect to physical access; addition of some minor exceptions to the provision that requires a 67% vote of the members to grant an owner additional exclusive use common area rights. These include: correction of engineering errors or construction encroachments, granting of an exclusive use that is consistent with the original plan of a phased development approved by the Department of Real Estate, to comply with laws, to accommodate a disability, or to transfer management or maintenance of an area that is not in general use by the membership at large; standardizes delivery requirements for notices, including clarification of use of email and electronic notices; and provides for exemptions for commercial condominiums, including certain elections and assessment requirements. AB 805 has no known opposition and is expected to pass. If so, it will become operative January 1, 2014. We will keep you updated on this change to condominium laws. If you have any questions, or if you would like a copy of the proposed legislation, please contact Kevin Rose. The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work. Copyright 2012 Reuben & Junius, LLP. All rights reserved.    

Cindy Wu Confirmed as Newest Member of Planning Commission After having been nominated by Mayor Lee to fill the seat on the Planning Commission vacated by Christina Olague, Cindy Wu was confirmed to the position at last weeks Board of Supervisor’s meeting and joins the Commission today. Wu’s credentials are impressive: she holds a bachelor’s degree in architecture from Berkeley and a master’s degree in city planning from MIT. She works for the Chinatown Community Development Center, and has recently been involved with the Central Subway project. Wu’s background suggests support for job growth and development in the city. This could be a year of change at the Planning Commission: Commissioner’s Ron Miguel and Mike Antonini’s terms expire on July 1. We will be watching closely to see if and how the Commission will change in the near future. Status of CEQA Air Quality Thresholds in San Francisco in Flux Many of you may have already heard that last month, an Alameda Superior Court judge threw out the Bay Area Air Quality Management District’s (“BAAQMD”) recently-adopted air quality thresholds, which are used by local governments to determine whether a project needs heightened environmental review for effects on air quality. The thresholds have been decried by industry and environmental groups alike, citing the strict thresholds create more cost and time for urban infill projects that are designed to place workers closer to jobs and thereby reduce automobile trips. As an example of the effect this is having on projects, our office is processing environmental review for a 4-story, 12-unit residential building with two parking spaces. Under the new thresholds, it is required to undergo an additional 6 months of air quality analysis, at of cost of over $10,000. Clearly, these thresholds will not be encouraging in-fill development – otherwise known as “smart growth.” The California Building Industry Association brought the suit challenging the thresholds. In throwing out the new thresholds, the court held that BAAQMD failed to conduct necessary environmental review under CEQA. For now, the San Francisco Planning Department has decided to continue using the air quality thresholds until the case is resolved and new thresholds are established. This is not good news for projects in the short term. Any new thresholds will likely have to undergo environmental review, thereby extending the time it will take for new ones to be established. New Regulations Being Considered to Improve Accessibility at Public Accommodations An ordinance is making its way through the legislative process that would place new requirements on certain commercial landlords who lease space to restaurants, bars, retail establishments, professional services or other businesses open to the public. If enacted, the ordinance would require a commercial landlord leasing 5,000 square feet of space or less to these types of tenants to remove certain architectural barriers to disability access. The landlord would also be required to include in the lease with the tenant the obligations each would have towards providing such accessibility upgrades. The legislation has likely been introduced in response to a rash of lawsuits filed against small businesses in San Francisco claiming failure to comply with the Americans with Disabilities Act – notably, long-time favorite spot Video Café in the Richmond was forced to close a year ago after 25 years in business. The legislation could help protect future businesses from being hit with these lawsuits, but landlords and businesses should certainly be aware that they will now be required to take care of these issues before the doors open to the public. The ordinance received the Planning Commission’s recommendation in December. We will keep you posted on future developments of the legislation.   The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work. Copyright 2012 Reuben & Junius, LLP. All rights reserved.    

The Eastern Neighborhoods Legitimization Program adopted by the Board of Supervisors in December 2008 required applications for legitimization to be submitted to the Planning Department no later than January 19, 2011. Proposed legislation is in the works to potentially extend the period for filing applications for an additional period of time, the length of which is yet to be determined. If such legislation is adopted, owners of property in the Eastern Neighborhoods who missed the original filing deadline would have another opportunity to participate in the program. We are hearing the program would be extended anywhere from three to six months. Our office has successfully obtained permits to legitimize office uses in the Eastern Neighborhoods plan area that would not be permitted under the current zoning. Generally, to be eligible for this program, a use to be legitimized must have been a permitted use under the old zoning (pre-April 17, 2008) when it was established and either: regularly operating on a continuous basis in the same location from at least January 19, 2007 to the present, or regularly operating on a continuous basis in the same location from at least April 17, 2008 to the present, and be associated with a business or enterprise which was also in the same location prior to January 19, 2007. Up to a year of vacancy during this period will not disqualify the building or space from legitimization, so long as the building owner can provide evidence that the space was marketed for new tenants during that time.  The Zoning Administrator makes the call on whether a property is eligible to participate in the program. If the legitimization application is accepted and approved, all current development fees must be paid as if the property was first entitled today (minus any housing and transit fees that were paid when the current use was established). The use would then become a legal non-conforming use within the new zoning district, and is for the most part allowed to continue indefinitely. Based on our experience, the two scenarios that are the most likely to benefit from the legitimization program are: (1) Buildings in former industrial districts (M) that are now zoned Production, Distribution and Repair (PDR); and (2) Buildings originally permitted for non-office uses that now more closely resemble office uses. We have spent many hours analyzing the legitimization program and discussing its implementation with Planning Department’s staff. We are available to determine your eligibility for the program and to guide you through the process if you could benefit from it. Please contact David Silverman if you would like to talk about whether this program may be right for you. We will keep you posted as the proposed extension of time for filing legitimization applications proceeds through the legislative process.   The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work. Copyright 2012 Reuben & Junius, LLP. All rights reserved.    

As just about everyone in the real estate business knows, the California Supreme Court recently upheld AB 26, the law dissolving redevelopment agencies statewide. In the same decision, it overturned AB 27, a companion measure that would have allowed agencies to continue operating if they made payments to the state. Over the past month, prognostication about the broad impact of redevelopment’s demise has abounded in the press. Affordable housing production will slump, economic development will suffer, schools will get desperately needed funding, and so on. Much less attention has been devoted to the nuts and bolts that have kept many developers up at night over the past month. Will the Planning Department take over the functions of the San Francisco Redevelopment Agency (“Agency”)? Will redevelopment plans still determine what gets built? Who will approve new projects in redevelopment areas? AB 26 created a bare-bones framework, providing for successor agencies to wind down existing redevelopment obligations. However, the creation of successor entities and details of implementation are left for local governments to implement. In this update, we cover San Francisco’s succession planning, which answers some, but by no means all, of these questions. A Primer on AB 26. AB 26 was passed in June of last year and provided for the dissolution of redevelopment agencies on October 1, 2011. The Supreme Court stayed dissolution, until it had time to hear a challenge to the law brought by the California Redevelopment Association. Because many of the statutory deadlines had passed by the time the Supreme Court upheld AB 26 in California Redevelopment Assn. v. Matasantos, it extended most of them by four months. Hence, all 400+ redevelopment agencies in the state will now cease to exist on Wednesday of next week. While the agencies themselves will close up shop, AB 26 provides for existing obligations and assets to be taken over by successor agencies, in most cases the city or county that created the redevelopment agency. These successor agencies are to continue to make payments and perform existing obligations. Agency funds, including proceeds from the sale of agency assets, are to be transferred to the county auditor-controller and distributed to other government entities, including school districts, according to state funding formulas. Tax increment monies are to be deposited in county-administered trust funds, which will first be used to pay existing obligations with the surplus distributed as above. AB 26 also provides for the creation of oversight boards to oversee the fiscal management of successor agencies. The oversight boards are to ensure that funds are properly allocated between existing obligations and the entities entitled to any excess redevelopment funds. In most jurisdictions, power on the oversight boards will be diffused among representatives from municipalities, counties, school boards, community colleges and special district. However, AB 26 includes special rules for oversight boards in consolidated city-counties, of which there is only one in the state: San Francisco. Here, the mayor will have a total of four appointees. Three are unrestricted; the fourth must represent the employees of the San Francisco Redevelopment Agency. All mayoral appointees are subject to confirmation by the Board of Supervisors. The remaining three oversight board members are to be appointed by the Superintendent of Schools, the Chancellor of the California Community Colleges, and BART. San Francisco’s Implementation of AB 26. With just more than a month between the Matasantos decision and the dissolution of redevelopment agencies on February 1, the City has had little time to prepare for the post-redevelopment era. That said, it has acted quickly to make the transition as orderly as possible under the circumstances. The succession framework is being put into place, and the mayor’s appointments to the oversight board moved quickly through the confirmation process. While many details will take months to work out, we report here on those aspects of succession that are most likely to be of interest to private sector developers. San Francisco’s Oversight Board Earlier this month, Mayor Lee nominated his four appointees to the oversight board. These are: John Rahaim (Director, Planning Department), Olson Lee (Director, Mayor’s Office of Housing), Nadia Sesay (Director, Mayor’s Office of Public Finance), and Bob Muscat, Director, IFTPE Local 21, the union representing many Redevelopment Agency employees.) On Tuesday, the Board of Supervisors unanimously confirmed all four mayoral nominees. At the same hearing, the Board of Supervisors passed a resolution (“Resolution”) sponsored by the Mayor and Supervisors Cohen, Kim, and Olague. The Resolution establishes the City as the successor to the Redevelopment Agency, provides for the transfer of Agency assets, and establishes the roles and responsibilities of various City departments in overseeing the wind-down of the Agency’s obligations. For many with projects in active redevelopment areas, one of the first questions raised is what rules will govern their projects and who will approve them. Will projects now have to be approved by the Planning Commission? Will redevelopment land use controls be superseded by the Planning Code? Will redevelopment agreements with builders be revisited by the successor entity? According to the Resolution, the answer to all three questions is no. AB 26 itself provides defines “existing obligations” to “include any legally binding and enforcement agreement or contract.” These include the disposition and development agreements, owner participation agreements, and other agreements by which the Agency approved projects. The Resolution provides for the rights under these existing agreements to be placed under the jurisdiction of the City’s Department of Administrative Services, which will continue to implement them. For projects that have yet to be approved, the land use controls in redevelopment plans and related documents will continue to govern development decisions in active project areas, as will the procedures established by the Agency. In the Mission Bay, Hunters Point Shipyard/Candlestick Point Redevelopment Areas, as well as portions of the Transbay Redevelopment Area, the oversight board will be vested with the power to grant approvals for projects, to modify existing land use controls and financing plans, and enter into new agreements to carry out the objectives of the redevelopment

The California Teacher’s Association recently submitted a proposed initiative to create a “split roll” which would reassess all commercial real property at its current market value, with reassessments to occur once every three years. However, it is unclear if the CTA will actually pursue obtaining the approximately 800,000 signatures necessary to put the initiative on the November 2012 ballot. These signatures are due by June 28, 2012. The law firm that submitted the initiative to the California Attorney General’s Office was unable to comment on the status, and the CTA website contains no information about this initiative. It is possible that the CTA is considering whether to pursue this initiative, or other strategies, as there are a number of tax and budget related initiatives that have been filed with the Attorney General’s Office. For years, certain interest groups have pursued amending Proposition 13, the landmark California constitutional amendment that capped annual property tax increases at 2% per year, based on the assessed value of the property, except when the property changes ownership or undergoes substantial renovation. A simple “google” search reveals scores of proposed pieces of legislation on this topic. Now, given the critical status of California’s budget, such proposals may receive more support from California voters. The CTA’s proposed initiative would only apply to commercial real estate. Residential real property would not be subject to these increases. Business real estate would no longer have the certainty of limited tax increases over time, and properties held for a number of years could face dramatic tax increases. Below is a closer look at some of the key provisions. The initiative defines commercial real estate as any real property other than a single family or multifamily intended to be used primarily as a permanent residence, and nonresidential property used for commercial agricultural production. Other exemptions currently in place under California law would remain. Under this definition, apartment buildings would be exempt from reassessment, even though apartments are typically owned for “commercial” purposes. It appears that the drafters want to avoid any pass through of real estate tax increases on to renters, presumably to protect individual taxpayers and gather additional political support. Left uncertain is if “second” homes or vacation homes would be subject to the reassessment since they are not used primarily as a permanent residence. If passed, the amendment would be implemented starting in fiscal year 2014-2015, at which time each county assessor would be required to assess commercial real property, as defined in the legislation, to its then current “full cash value”. According to the Legislative Analyst’s Office, counties are directed to begin with those properties that have not changed ownership for the longest period of time, with the remainder to be phased in over three years. Then, every three years, all commercial real property would be reassessed to its current fair market value. There would most certainly be a period of confusion and uncertainty as the County Assessors work out the reassessment procedures. Interestingly enough, depending on whether the commercial real estate market fully recovers, some property owners could realize a decline in value. For the most part, it is expected that revenues to the state would significantly increase, by about $4 Billion dollars. (California Legislative Analyst Office, January 4, 2012 Analysis). The Legislative Analyst points out that the initiative could negatively impact state tax revenues due to loss of after-tax income and potential reduction in business activity due to less investment, fewer business expansions, reduced operations, and increased costs to customers. The business of real estate would change in that the comfort of knowing the amount of real estate taxes upon acquisition of property would no longer apply. Real estate owners would be subject not only to the ups and downs of the market, increases in the taxation rate due to other initiatives or statutes, but also to each county assessor’s methods and practices. The definition of “full cash value” or “fair market value” is often subjective, and cannot be easily pinned down without a sale of the subject property. Real estate tax appeals would certainly increase if the proposal is passed. Any new taxes would often be passed along to commercial tenants, which could also impact the market’s recovery. The CTA has made the strategic decision of protecting residential property tax rates, at the expense of businesses. In fact, the name of the initiative, “Protect Homeowners and Close Corporate Tax Loopholes Act”, clearly highlights the marketing strategy. Other goodies are made available to homeowners, including increasing the homeowners exemption by 100% to $14,000 per year, and providing additional tax deductions for renters. In exchange for the increased real estate taxes, businesses are given an exclusion of up to $1,000,000 for personal property taxes. This could help ease the tax burden on businesses in some cases. However, for most real estate owners, personal property taxes are a small part of the tax bill. This exemption is likely more helpful for businesses that lease space, rather than own their property. Also, the exclusion does not allow this benefit for boats and airplanes, unless used in day to day operations of a business. It will be interesting to see how the real estate community reacts to the proposed initiative, if it in fact qualifies for the ballot. It is likely that there will be competing tax measures on the November 2012 ballot, so the upcoming election season will be exciting. Special Thanks to Mark Ong, of Independent Tax Representatives, LLC, for providing some of the background information referred to above. The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other